The present invention relates to electronic commerce in general, and, more particularly, to a data processing system that provides an efficient market for: (1) the provision of insurance by insurers to those seeking insurance (the primary insurance market), and (2) the reinsurance of existing policies between reinsurers and reinsurees (the secondary insurance market).
As anyone who has ever sought insurance knows (hereinafter an xe2x80x9cinsurance seekerxe2x80x9d), it can be a challenge to find an insurer who is willing to offer insurance at a reasonable premium and on reasonable terms. Although the verity of this statement is clear for insurance seekers who are a poor risk, it is also true, albeit less obviously so, for those insurance seekers who are a good risk. For example, although many insurers may endeavor to provide some types of insurance, few insurers provide more than a small subset of all of the types of insurance offered by all of the insurers. One insurer may offer only homeowner""s insurance for single-family dwellings while another only offers flood insurance for apartment dwellers. Therefore, even an insurance seeker who is a good risk may waste its time approaching insurers who do not offer the insurance product the insurance seeker desires.
Furthermore, even if an insurance seeker finds an insurer who does offer the desired insurance product, the insurance seeker is unlikely to know if that insurer is offering the insurance at a competitive premium and on competitive terms. Typically, there are three ways that an insurance seeker can remedy this.
First, the insurance seeker can contact (e.g., in person, on the telephone, etc.) numerous insurers and inquire into their premiums and terms for a particular insurance product. In fact, many people do precisely this when seeking automobile insurance because it is well known that the premiums, terms, fees and underwriting standards of different insurers vary widely. Although it clearly pays to shop around, even the most stalwart are unlikely to contact more than a dozen insurers because of the time and effort involved.
Second, the insurance seeker can consult newspapers and other periodicals that publish premiums and terms for a variety of insurers. Such listings are, however, unlikely to be comprehensive and are likely to be out-of-date, particularly in times when premiums and terms are changing rapidly. Furthermore, published premiums are often misleading because they apply only to those insurance seekers who are the best risks.
One factor that accelerates the perishability of premiums in newspapers and periodicals concerns insurers who discover that their published premiums and terms are not competitive. Typically, those insurers immediately change their premiums and terms, but because of the latency in the publication and dissemination of newspapers and periodicals those changes are not immediately widely-known.
Third, the insurance seeker can contact an xe2x80x9cindependentxe2x80x9d insurance agent who represents a plurality of insurers. The independent insurance agent is not, however, necessarily motivated to provide the insurance seeker with the least expensive insurance product at the best terms but rather the insurance product that garners the agent the largest commission.
Regardless, when an insurance seeker has satisfied itself that it has found an insurer who offers the desired insurance product at a competitive premium and at reasonable terms, the insurance seeker must thereafter expend an indeterminate amount of time and energy to learn if it qualifies for the desired insurance product from that insurer. And although an insurance seeker may satisfy itself that it has located an insurer with the best premium and terms, that does not mean that it has, in fact, done so. There could be other insurers, unknown to the insurance seeker, who offer better premiums and terms who would accept the insurance seeker as an acceptable risk.
Furthermore, the insurer may decide that the insurance seeker does not qualify for the desired insurance, or that the insurance seeker, because of poor health, accidents in the past or other high-risk factors, does not qualify for the best premiums and terms, which are what brought the insurance seeker to that insurer in the first place. In either case, the insurance seeker may have wasted its time in approaching the insurer or may not receive the premium and terms that were anticipated.
The end result is that it can be difficult for those seeking insurance to find an insurer that is willing to offer the insurance product that the insurance seeker desires at a competitive premium and on competitive terms.
Perhaps surprisingly, it is even more difficult for each insurer to find a satisfactory number of potential customers (i.e., insurance seekers who are interested in and qualify for the insurer""s insurance products). In fact, some insurers spend hundreds of millions of dollars per year on advertising to entice insurance seekers to their door only to learn that many do not qualify for a particular insurance product under the insurer""s underwriting standards. This is extremely problematic for insurers because the money they spend on advertising, 800-numbers, insurance agents and underwriters must be recouped from the gross receipts of those products that actually sell, which increases the insurer""s costs, pushes it""s premiums up, makes it less competitive in the marketplace, and hinders its ability to attract insurance seekers. In other words, a portion of the premiums paid by insureds goes to pay for the insurer""s costs in advertising and culling out insurance seekers who are an unacceptable risk. Therefore, an insurer could offer an insurance seeker who is an acceptable risk a lower premium if the insurer had numerous insurance seekers knocking on its door, all of whom were acceptable risks. Furthermore, the insurer""s profits could still rise if its costs of doing business decreased faster than its premiums did.
In summary, not only do insurance seekers have difficulty locating an insurer that offers the insurance product sought at competitive premiums and on competitive terms, but it is also difficult for insurers to find large numbers of insurance seekers who are acceptable risks without having to spend large sums of money on advertising and culling out the unacceptable.
Therefore, the need exists for a mechanism that enables an insurance seeker to quickly and easily find an insurer that offers the insurance product that it desires at competitive premiums and on competitive terms and that also provides insurers with large numbers of acceptable insurance seekers at a reasonable cost.
The present invention is a data processing system that provides an efficient market for: (1) the provision of insurance between insurers and those seeking insurance, and (2) the reinsurance of existing policies. In particular, the data processing system provides an efficient market that not only invites insurers, insurance seekers, and reinsurers and reinsurees to patronize the system, but that induces them to patronize it as well.
The inducement is manifested in several ways. In the illustrative embodiment of the present invention, they include, but are not limited to:
For Insurance Seekers
the data processing system provides an insurance seeker with a single xe2x80x9cone-stop-shoppingxe2x80x9d source that matches the insurance seeker to an insurer who offers the insurance product sought;
the data processing system matches an insurance seeker to only those insurers who satisfy the insurer""s underwriting standards; and
the data processing system guarantees an insurance seeker that it is being offered the best premium or the best terms or both available from any insurer who patronizes the system (of those insurers who deem the insurance seeker an acceptable risk and who offer the insurance product sought).
For Insurers
the data processing system provides those insurers who offer competitive premiums or terms or both with a large number of insurance seekers who the insurer deems are acceptable risks at a lower cost than in the prior art, which lowers the insurer""s cost of doing business that, in turn, enables the insurer to offer even better premiums and terms;
the data processing system provides those insurers who offer competitive premiums or terms or both with statistics regarding the market in insurance and reinsurance, which can be used by the insurers to: (1) determine which types of insurance they should offer and at what premiums and terms, (2) arbitrage those insurers who do not have access to the statistics, and (3) cost/value the insurance policies in their portfolio, which facilitates the reinsurance of those policies, which, in turn, increases their liquidity, distributes their risk, and lowers their cost of doing business; and
the data processing system provides insurers with an efficient market for the purchase and sale of the servicing of policies (e.g., providing claims adjusting, premium collection, etc.).
For Reinsurers and Reinsurees
the data processing system provides reinsurers and reinsurees with an efficient market for the reinsurance of existing policies; and
the data processing system provides reinsurers and reinsurees with statistics regarding the market in insurance and reinsurance that are of value in: (1) assessing the cost/value of individual policies that are to be reinsured; (2) determining which policies they desire to reinsure and at what price, and (3) arbitraging those reinsurers and reinsurees who do not have access to the statistics. These inducements are possible because it is recognized that the costs of doing business for insurers, reinsurers and reinsurees and the premiums and fees to insurance seekers are unnecessarily high largely because an efficient market for insurance and reinsurance does not exist. Furthermore, it is recognized that if a highly efficient market for insurance and reinsurance did exist, the cost of doing business for insurers, reinsurers and reinsurees could decrease, the premiums and fees to insurance seekers could decrease, and the provider of the market could still make a profit. Furthermore, the existence of an efficient market could even provide insurers with a larger profit than they make now if operating costs drop more quickly than premiums drop. In other words, the intermediation of an efficient market between insurers, insurance seekers, reinsurers and reinsurees can actually make the cost of insurance to insurance seekers go down, the cost of doing business to insurers, reinsurers and reinsurees go down and the profits to insurers, reinsurers and reinsurees to go up. Therefore, a data processing system in accordance with the illustrative embodiment endeavors to provide a market for the provision of insurance and reinsurance that is highly efficient.
It is also recognized that the efficiency of the market for insurance may be affected by the efficiency of the market in reinsurance and vice versa. Therefore, the illustrative embodiment of the present invention seeks to improve the efficiency in both the market for insurance and the market in reinsurance so that, to the extent the efficiency in one enhances the efficiency in the other, a synergy of efficiency between the markets is affected.
It is further recognized that merely providing a market and inviting insurers, insurance seekers, reinsurers and reinsurees to patronize it is, in and of itself, insufficient to yield an efficient market. The prerequisite to an efficient market is volumexe2x80x94in numbers of insurers, insurance seekers, reinsurers, reinsurees, and dollars transactedxe2x80x94and the prerequisite to volume is an efficient market. This is a Catch-22 that has, until now, stemmed the development of an efficient market in insurance and reinsurance.
To overcome this predicament, some data processing systems in accordance with the present invention might incorporate one or more mechanisms for priming an efficient market and for reinforcing the efficiency of the market. Three illustrative mechanisms are.
First, the pro rata fees from a patron for patronizing the system might decrease as the total fees earned from transactions associated with that patron increase. For example, although the system may receive a fee from an insurer when the insurer writes a policy with the assistance of the system, a portion of the fee may be remitted back to the insurer if the insurer transacts a large volume of business through the system in a given interval. Advantageously, the fees from all types of insurance products are aggregated for determining the amount of the remittance. An illustrative remittance schedule could be:
Therefore, this mechanism encourages insurers to patronize the system with larger, rather than smaller, volumes, which is accomplished by endeavoring to offer the most varieties of insurance at the lowest premiums and at the best possible terms.
Second, some or all of the parties who patronize the system might receive statistics compiled by the system on the condition of the market in insurance and reinsurance (i.e., a service analogous to the Bloomberg News Service or a stock ticker, etc). Although these statistics cost the data processing system little to compile, their value is so great that insurers, reinsurers and reinsurees who do not have access to the statistics will have difficulty, in the long run, in competing with those who do. An analogy makes the situation clear; a trader of stocks without access to the ticker and current bid and offer quotations can be arbitraged by a trader who does.
Furthermore, although some or all of the statistics may be sold for cash, the statistics are advantageously given for free, or sold at a subsidized price, to those patrons of the system who actually transact business through the system. Advantageously, price for the statistics decreases as the measure of fees earned from transactions associated with a patron increases. For the purposes of this specification, the provision of statistics for free, or at a subsidized price, to those patrons of the system who write policies or reinsure or both through the system is called xe2x80x9cnetbacking.xe2x80x9d An illustrative netbacking schedule could be:
This mechanism also encourages insurers to patronize the system with larger, rather than smaller, volumes, which is accomplished by endeavoring to offer the most varieties of insurance at the lowest premiums and at the best possible terms.
Third, a portion of the pro rata fees incurred by insurers for writing policies to insurance seekers with the assistance of the system might be credited against the fees incurred by those insurers who reinsure through the system (as either reinsurer or reinsuree or both). For example, many insurers who write policies immediately seek reinsurance (i.e., to transfer all, or a portion of, the risk associated with the policy to a reinsurer). It is, therefore, possible that an insurer will write a policy to an insurance seeker through the system, and incur a fee for doing so, and then reinsure that policy through the system and incur a second fee. The illustrative embodiment of the present invention credits, according to some credit schedule, a portion of the fees associated with a patron for writing insurance through the system against the fees incurred for reinsuring through the system. Such a credit schedule could be:
An alternative embodiment of the present invention works in reverse and credits, according to some schedule, a portion of the fees earned with respect to a patron in reinsuring through the system against the fees incurred by the patron in a transaction for writing insurance through the system. In yet another embodiment of the present invention the fees incurred in reinsuring through the system are credited against the fees for writing insurance through the system and the fees incurred writing insurance through the system are credited against the fees for reinsuring through the system.
Therefore, this mechanism also encourages insurers to patronize the system with larger, rather than smaller, volumes, which is accomplished by endeavoring to offer the most varieties of insurance at the lowest premiums and at the best possible terms, and by patronizing the market in reinsurance with the best possible bids and offers.
The end result is that in order to compete in the insurance markets insurers, reinsurers and reinsurees must have access to the statistics, which encourages them to patronize the system with competitive offerings to get access to the statistics, which increases the competitiveness of the market, increases its volume, and promotes its efficiency. Therefore, some embodiments of the present invention prime the market for efficiency and incorporate a positive feedback mechanism that maintains that efficiency. It is understood, however, that the priming of embodiments of the present invention may be accelerated by conventional advertising.
An embodiment of the present invention comprises: receiving at a data processing system an underwriting standard from each of a plurality of insurers; compiling a first set of statistics in the data processing system based on the underwriting standards from each of the plurality of insurers; and outputting from the data processing system the first set of statistics to a selected insurer at a price that is based on a measure of fees earned with respect to the selected insurer.